NFI Group outlines strategic moves to reduce warranty provisions and optimize capital investments, signaling a positive outlook for future cash flow management.

OPERATOR - (00:00:00)

Is in those out years. And that's what drives up the ASP between the point of installation and the backlog compared to what happens when we actually deliver the unit.

UNKNOWN - (00:00:10)

Okay, that's good insight. And thinking about the repricing time of manufacture, would that include outside of the PPI any increases on account of tariffs or I guess like force majeure type of events? No. Think of tariffs if you and I were building a house. Almost like an engineering change order. So we are going back to the customers now. Again, every customer is different. Every contract is different for the most part. Here's your bus for 500 grand. Here is an added charge for the tariff and of course the math associated with the tariff. For a while we were able to use an average tariff application per unit. Now given some of the changes in the regs and the regulations, most customers want a specific tariff count based on what's actually in their bus. So that is an added bill or an engineering change order type dynamic as opposed to an embedded part of the PPI or any other part of the pricing. Okay, that makes a lot of sense. And I guess last one for me and I guess Cam asked this earlier about the capital investment required in American seating. But from an OPEX perspective, what level of OPEX would be required on your part to support American seating into next year? None. I mean at the end of the day this is an investment we've made. We have bought the debt. We are helping with investing in the business to operate the cash flow. They are still in two facilities. There will be a couple of million dollars spent to rationalize those facilities into one. It is not a notable amount and of course the operating cost will be managed by the business itself. Okay, perfect. Thanks for the call. I'll get back to you.

OPERATOR - (00:02:01)

I would now like to turn the call back over to Steven.

Steven - (00:02:06)

Thanks Michelle. So we have one question from our webcast so I'll just read it aloud and it references similar to what we had this morning and other cases. Is the warranty provision a worst case scenario and does finalizing the agreement with EXALT lead to a scenario where the provisions will be reduced materially?

UNKNOWN - (00:02:27)

Yeah, so I'll take that question. So what we booked is the liability side which is our best guess today at what all the costs will be to retrofit all the batteries and support the warranty obligations on those batteries. So that's what's sitting in our financial statements right now.

Brian - (00:02:48)

And the second part, Brian, finalizing the agreement with EXALT leads to a situation where the provisions will be reduced.

UNKNOWN - (00:02:54)

Yes. So we are both motivated both us and EXALT to complete this agreement before the. End of the year. And so we have meetings every day and every week in this negotiation as part of us assuming some warranty obligations going forward. There's diligence on certain people and equipment and IP and software and so forth. That is actively going on. So the ultimate agreement and the economics associated with it if it goes the way the term sheet would be a significant reduction in the provision. And so again we'll issue a press release that. As soon as we know. All right. Okay. Well that was it. That was all of our questions. So thanks everyone for attending today and for listening in. As always, please don't hesitate to reach out to us with any further questions. All of the information you need Is on our website including today's presentation. Thanks so much and have a great weekend.

OPERATOR - (00:03:51)

This does conclude today's conference call. Thank you for participating and you may now disconnect.

- (00:11:30)

Deliveries, and we remain focused on bringing this number down prior to the end of the year. Capacity for them to prioritize deliveries for seats on these essentially complete, we have lower production with american seating in the fourth quarter, which should free up buses. On slide twelve. We recap, driven primarily by the north american business. It's in quarterly deliveries. Transit deliveries were up 14% year over year. East was achieved. Despite some zero mission bus customer acceptance delays and seatrelated disruption, Coach deliveries were down in the quarter due to lower private sector deliveries, although we anticipate a strong recovery, reflecting the strength of our backlog. We in the. Eve were average, consistent scientists and selling in person. With the price you see this year, only three year interest for engraved has heavy disputed transit buses and Monte low floor cutaway buses in the quarter. This is of 36 footer coaches. We also delivered a record 207% year over year, and the average selling price was up by 21 percentially flat quarteroverquarter and down yearoveryear. This reflects. Reflecting continued strong demand. Turning to slide 13. Aftermarket gross margin manufacturing segment gross margin excluding the impact of the battery recall jacks in North America and the impact of tariffs. In the manufacture sales mix reduced program rail was revenue ten Vista from the point time large. Timing pistolated broad with the second core disrupt timing related and orderly results. Slide 14 walks through year's margins highlights our improving backlog profile flowing through impacts in the third quarter and sales mix. The yearoveryear, improvement in growth over year changes in adjusted EBITDA within our reporting segments, deliveries, favorable sales mix, and improved pricing. Corporative manufacturing EBITDA was up by 36.1 million, driven by higher adjusted EBITDA decline by 2.2 million, primarily due to negative impacts of foreign exchange, including a lower us dollar. Slide 15 shows LTM adjusted EBITDA performance for both manufacturing and aftermarket segments from two. Thousand and 20 achieving suit armed 102 manured in 2520. Million dollars. Teams on mute and Elkistra and Branga. Slide 16 quarterly free cash flow was positive with the strong, which is an increase of 114,000,000 year over year. Strong increase driven by the higher adjusted EBITDA and lower interest expenses. There was a significant positive impact from working capital in the quarter, but this was largely due to the battery recall increasing provision balances excluding those impacts. Free cash flow combined with changes in working capital would have been 35 million. This represents a $68.9 million improvement from the prior third quarter of. 2024. For the seven, collecting lower miles. Lower enough to look up into. Total levers, bridge liquidity. And return. On invested capital. We continue to execute our deleveraging strategy and reduce total leverage to 4.28. Times on an LTM basis. Note that this calculation includes first lien, second lien. Convertible debentures and lease obligations for banking purposes, which exclude convertible debentures and leases. Total leverage was 3.37 times. Liquidity was up approximately $241,000,000 year over year and up by 59.3. Million from the second quarter. This reflects our positive cash generation and debt repayment. ROIC has continued to trend positively, supported by improved adjusted EBITDA and lower total investment now to the turn the cost. On fourth order. And our plans for only trend 26. We expect that NFI will continue to grow, revenue grow capital and net earnings. I'll walk through the drivers behind this can profit adjusted EBITDA. Free cash flow return on invested cap over 15,606 equivalent units. 37. So now on, slide. 19, you can see the makeup of our Bactigian momentum and comment on the key risk factors in our operating environment, 37% of which are firm and 63% are options. Our firm orders provide significant visibility for the fourth quarter of 2025 and have also helped us build the majority of our 2026 and visibility for our production. Schedules over the long public subturn of March market client production restoration. Susan. Total dollar value options. Runway, which is now $13.2 billion, having grown 8.3 billion just over the last three years. In the third quarter, we saw higher new orders for internal combustion buses. As a result, the zev percentage of our total backlog remained relatively, which is consistent with our experience in the first half. Of 2025 be flat. Our improving total backlog and firm auction profile is displayed on Slide 20. The chart demonstrates the improvement in average sales price, or ASP, per equivalent unit across our total backlog, including both firm and option orders. Average selling price have increased for older glass of oil coaches was heavy in the long transplant funded by 5%. In the dark year. 60 heavy, 40% and 52% over that same time period. Now, these pricing improvements are expected to continue flowing since q three of 2021. ASB for motor coaches through our income statement. We saw this in the first three quarters of 2025, and we expect even more improvement going forward. We anticipate further gains in the fourth quarter, supporting our oleck for the highest quarterly adjusted EBITda. Qu? quarter in the company's history The north american bidding environment remains strong, as shown in our bid universe on 217 EUS and bid submitted, which is up 50% 1503 equivalent units. This includes 6021% recently from the submit and sections. Court order along with large package. States. The black line in the chart shows new awards. We saw some decrease from the previous quarter. Primarily due to timing Debl events that are being hosted in the over the next couple of years in the United diamond delays on new orders. The chart illustrates the typical correlation between bids submitted in light blue and contract awards in black. With a lag of a few quarters from submission to award. Over for our five year expected bid universe, which is at nearly 23,000 equivalent units. This compiled from customer fleet replacement plans remains very strong. Sustained demand is driven by increasing fleet age. With nearly half more. Continued public stroke trend on good government leaks. Now over twelve years of age. On Slide 22, we show our book to Bill and option conversion. Ratios 71.8%. On an LTM basis, this improvement reflects NFI's auction conversion ratio has improved significantly, reaching increased order activity, a higher number of exercise options, and the improved compet. Competitive landscape and our competitiveness. The slight decline in our booktobilt from the second quarter reflects slow renew orders and higher deliveries in q three. On slide 25. Based on our yeartodate performance and our expectation, it reflects our guidance ranges. For key metrics for ranger of year, we've tightened up a few certain ranges. We now look at direct driving, revenue adjusted ebb deductions arrange reproducing. Points from five three point. 300. Our highest quarterly adjusted ebitda ever. Distress. In the fourth quarter, we expect higher deliveries, particularly in private markets, and improved sales mix, drive and should deliver flex, continued improvement in our perunit economics and a strong contribution from the aftermarket business. Cash capex are projected to be lower than initial expectation, even as we have invested into several new facilities, including our all canadian Newfire build project in Winnipeg and the. Alexander Dennis plant set up in Las Vegas, Nevada. For clarity. Our guidance includes yeartodate impact of tariffs and some of the smaller potential impacts on fourth quarter results. Fundamentally. Boss Mitchell, and guilt changes that. MIT risk would have some on slide 24 we provide our latest views on the Mac are already produced or will be finalized in November. Offset by the fact that the majority of our remaining 2025 vehicle sales grow tariff environment we observe some stability in the tariff environment that we import and supplies that have started to provide additional during the third quarter and we relatively consistent direct tariffs on goods. Details on supplier story that have started to provide additional details on. Tariff surcharges that have been included in their pricing. Used and installed on our vehicles. On November 1. Those are indirect tariffs, ones we pay to suppliers for parts and components. A new US section 232 tariff of 10% was applied to all charges plus. Eight two. There's increase. Prometheus price. Any. Trial with statistical inventory from Canada into the United States. Physically. We continue to view tariffs as a passthrough to motor coaches prior to November 1 we have moved the majority of our fin cost to customers through contractual obligations and through general. Customers and we may not be able to cover all of our costs. We have just increases and negotiations. This does require negotiation with Emily had success in being able to find solutions with customers, so. Far. Longer term, we will continue to assess our geographic production schedules to try and minimize taste. Nothing is significantly ozure. Seven. We. Operated. And during the last ten months, we've opened the Las Vegas, Nevada productions facility for Alexander. Double desk buses opened a new service center for MCI in California, and we acquired first bus. Into our all canadian build production line that has been committed to Michigan based seat supplier. We also recently put our friction in Winnipeg, Manitoba. Carefilated costs have been at career negotiations within the aftermarket segment. We have experienced some. Route in in work and process inventory as we complete custom margin pressure, primarily due to the timing between tariff and currents and the pricing updates. Our ability to address pricing models quickly mitigate as longerterm impacts. Now on slide 25 court. Increasing pipeline. Very strong. Back street and bomb tourism. .2 billion. Combined with option conversion rates. And we've had solid cash generation supporting debt repayment and the deleveraging plan. That we set out our total backlog of drawing booktobill ratios reinforces our confidence. In our near term and our longerterm outlooks. In the UK, we were pleased to see active engagement and very strong support from the scottish government. And several active procurements have supported growth that we project now for 2026 deliveries by Alexander Dennis. NFI's Aftermarket business is a foundational business unit with steady and recurring revenue streams. A solid margin program. And insignificant. Four significant tickets. Part of our Bigfoot frame is coming with generic monorail. We can will be some headwinds. And volatility, especially with private motor, to ensure an appropriate response where required. While, though, we should actively track trade developments and will take all actions possible pricing. Our extremely strong backlog and contractual provisions, coach markets, our domestic production, our nibble aftermarket lead us feeling well positioned to respond as needed to the dynamic environment. Tariffs and now battery replacement. Programs. We have not changed. Our so, despite headwinds related to seat supply or overall view that Anfi is a very strong trajectory of growth that should see a significant investment in operating and financial metrics. We are confident in the strength of our money pointing market six. With that. Our form and all products from the line for. As I strictly head into. Chandell. Please provide instructions to our colleagues. Thank you. Thank. You. As a reminder to ask a question, please press start. And to withdraw your question, please. Press will come from chris murray with atb capital. Again. The first question. little market your line is open Battery reserve and maybe some extra color on that. Guys. Good morning. We can go back to just talk about the first piece of that. Can you maybe walk us? Through your confidence level on what f I PI actual. Ipo. That evolution over the next couple of years. And then if you can also talk about supply chain. Around batteries because I know at one point. I guess exalt had been a bit of an issue exiting the market. Do we still have a supply chain issue in batch about even getting batteries, which has led you. To look for a second supplier now that exhaust batteries. And how do we think about that on a goforward basis. Great questions. Thanks, Chris. So let me start with the second one first. Exalt had gone. From a private ownership in the United States to. Being we've been dealing with exalt for a decade and being. Yes, there's been volatility of supply deco over Android. There. Now reverse. A pretty low senate, which is multi zero, means. Business. Crease tools and our best battery. We did it out of, not of concern of supply, but instead up a second battery supplier, which took us about two years of surety and competitive dynamics, so we actively went out a second so we go to a situation now where, yes, we have with those alternate batteries for about two. And a half years. Now. Here's to. Validate and commission onto our buses. And we've now been delivering. But recall we have to deal with. But exalt is leaving the us market and leaving the battery business. We have signed a term sheet. Of course, it's non binding, but it recognizes both. How? We would do the recall the economics associated with it, as well as how product support in the middle. We. 're in difficult circle terms. Point sheet or both fields. Ago process. And we are actively negotiating with exalt. And its parent on the economics associated that we do not have a definitive agreement and therefore we can't provide the details associated with it. We are called batteries. Are proven and the supplier has the sheer confidence that the batteries we're going to put on in replace of the address that they can handle. Not only our ongoing manufacturing requirements for the manufacturing demand, but also the surge demand over the next year and a half or two years, whatever it takes to finish the actual recall, so I wish I could give you. More color on. Actual dollar cash. The economics I have. So therefore. To provide Brian any details. Absolutely. Chris, let Brian give you a little bit more color on some of the economics associated yeah, just as we mentioned in the call, we would expect the campaign to be executed over the next 18 to 24 months. So just from a cash flow perspective, We'll start that campaign in the first half of 2026. And so we would expect there to be an effect. And then a warranty piece of what we put in there. We would expect figures. Half of that done in 2026 and half in 2027 could be dispersed over the next kind of one to four years, so. While it's a big number. That'll be done. In terms of limit with the capital. Even going to the bottom of a ring still. A guidance still imply sickening up. Going back and thinking about the outlook. So big quarter comes, there's a lot of buses that have to move out the door. Can you talk a little broadly how you're feeling about. The manufacturing platform a little bit about how you're feeling about that, but also, I think more where you're at as we go into 2026 and as we move beyond, I guess some of the call it the problems of Covid and the equities of Covid. And supply chain. 26. Feels like it's setting up to be maybe the first normal year. At Ombudsa decade. How? Can. Actually do at this point. It's a great question, Chris. So fixed and working. What do you think is a business with backlog? Supply chain. Kind of, for the most part. Let's start with the fourth quarter so the guidance that we've maintained on the low end and we've just dropped the top. End a little bit to reflect. We're ten months into this business. For this year. The guidance range suggests the fourth quarter of 2025 would deliver an adjusted Ebitda in the neighborhood of 105 for to be the biggest period. It had been further supported by some deliveries that were usually 125. While we have always exit plans rectived for 2325 provide that move with who didn't execute. Our ability to deliver growth in 2026. We've not yet provided guidance. We expect a proven in overall deliveries for a couple of reasons. For 26. But as we've discussed previously, as we look into 26 1st, we increase the canadian build. So we've got four to the freed up capacity that we would have taken. For in potentially five units a week. Of additional delivery so Minnesota to build a shell in Canada, send down to the US of her completion now add more capacity in the US for bills. We should be finally past the seat supply disruption. Two issues we're now in control of. Our own destiny of american seagur. Seagurs if it invites the payment. To simplify. To affect. To other suppliers. Our reliance on american seating, for example, in the third, not 60 like it was this time last year. The UK mark quarter is somewhere in the range of 22% or 24%. Of the deliveries. Kit has gone through quite a bit of challenges this year. Paul Dave sent working with the government of Scotland on fertile schemes. But this has been an amazing job. Of idling its facilities with that, more importantly, has been able to. Already. Solicit or solidify. A reasonably serious increase in volume in the UK and in the ADL markets for 2026. And then, of course, the other is they are. Buying that. Are the boss business marks and leading to your opinion, both support cutaways in North America. They are also now deep into the reintroduction of a mediumclass vehicle that we already have sales for booked for 2026. Add to that the underlying contribution that continues from the aftermarket business. Now, if you look at some of the graphs, you may see a bit of a tail off. On margin, you may see the EBITDA slightly less than last year. However, That part of that business is highly volatile, associated with program so where customers will do midlifes. Or upgrades to their fleets, something we can't really control. That core business of aftermarket continues to grow. And John Provin, who started well over a year ago. Now to run that one thing up is when Bungs Ryan looked on move to purchase. All that. What we believe will be a record quarter for us in 2020. Performance opportunity for 2026. Sorry is a long answer. Sorry. In fourth quarter of 25, In a very strong. But I thought all those things are appropriate. No, that's great. And the next question will come from Krista. Free. Thank you very much. I'll leave. It there. Thank you. Chris with cibc. Your line is open. Hi. Thanks for taking my question. I just wanted to go back. To your slide on the high and moderate risk suppliers and just comparing it to putting 20 what. You'd look to like their new expenditure. And again, the number. For July. My daughter, Tony. Marie. I was just wondering if you can give a little bit more. Color? From nine to twelve and high risk from one to three. Those suppliers and what's changed there? Yeah, good question. So, obviously there's subjectivity here in terms of how we rate things. And so we've seen kind of a nominal movement there in our medium risk. I don't think you should really read anything into that beyond the fact that we're actively managing this, and we're sensitive to any types of disruption that we're seeing there. So I wouldn't say that things have materially changed from. Earlier. And then I also just wanted to confirm. All tariffs that are in effect. On the guidance front. Did you say that at this point in time, the guidance for the remainder of the year includes everything we know as of right now. Yes. And the November. Yes. The early November tariffs. We don't think. That would be more of a 2026 issue that we'll need to deal with. A significant effect in 2025. Okay, perfect. Thank you. I'll jump back in the queue. Come from Darryl Young with Steve. Your line is open. Thank you, Kristen. Good morning, everyone. Which personnel, I guess, are going to be doing that. Is it newfire people that you're. Going to have to pull from your current facilities. And is that going to result in a placement of the batteries that needs to be done. Over time and added costs and disruption to your existing supply chains or really no impact there. Really good question. And we spent a lot of time. So when we started the thinking of a recall, we had kind of three options. One was pull the buses back to the factory. Not really. Practical. You also have border dynamics and so forth. Number two was to set up a third party. Or engage third parties, maybe on the east coast of the west coast, and then. The third option, which is on a set of one of. Lakhs. Run even though circle. Circles that we held on. Service. So what we will do is effectively because they're battery electric buses. Chicago, Dallas, San Francisco, Los Angeles. We will have trucks, if you will, driving a battery electric bus. Done. Heat map of all the location of all the battery buses that we'll need to recall into the service center. We will dedicate a bay or two. There's a high propensity in the earth, but population is in southern California and in northern California. We will dedicate two or three bays or whatever is up. Each bus. In terms of taking proprietor at each of those service centers and run them through an exchange program. Up the back. And then he's putting them in. Putting them. On. Equipment. None of the people from the factory will be involved, so. We think we'll be able to do a number of buses a week at each service. Center. Impact on the manufacturing operations. We may need to add a couple of extra the service center will forego a little bit of third party people in each of those service centers depend on each of their individual needs work that they do today to be able to assign the space and the people to do this program, so. As bright alluded to at this point, the scheduling, the preliminary scheduling, says somewhere between. 18 and 24 months. To be able to place some painting. Paintings. Have all the engineers and new product development people, the supply people, validate. And then in earnest, we'll start the recall, most likely right after getting the bills, materials. And so forth. That will start in probably January 1 quarter. So we've got to make sure the supply is right. The people are skilled and trained, and then the work with the customers. To allow them to get the vehicles to us. Just some color as well, Darryl, as you probably heard them in the notes. We have disposed. Right now. To be able to allow the operator, the operators reduce them that you have to buy there's. A slight bank. Decorate. Engineers. Got it. Okay. And then when you flip to the sole battery supplier, 2026, for your new orders. Safety and caution. We've deployed that and are well into that process now. Is the batteries they're going to be supplying. Is that a new technology? And I know you mentioned you've been working with them since 2023, I think. Or is that the same old proven one that they've been building? And you're going to add it to the buses, and there's no design spec. Changes or anything like that. That needs to come through. And do they have the capacity to kind of hit the ground running? In terms of volume. So the cells themselves are an LG cell. They are packaged by a company called American Battery. Systems that's located in Michigan that are. Delved. To the ones. Those batteries are in use in many applications by some of our competitors today, so. There is not a new chemist recluding vehicles, trucks, buses around the world. And free, or a new application or type search or anything associated with those batteries. Now. We have validated with that supplier, they can handle both our normal production requirements, which we have. Today to deliver the pace at which we need these recall for 2026 and the slots sold. As well as the surge capal batteries. As you can imagine, we're going to be taking off. Almost 700 buses worth of batteries, so we're also actively working on batteries. To do the reappro, the resup, renting. I could hear from blade. The disarmament. Collider, which then leads into our engineering teams are already started looking for yet another battery. Type. That would be an alternate to a safety perspective. So we're pretty comfortable with it. Should anything like this or ever come up again, we will have multiple sources. What we have, so what we want to be able to have is always two sources of batteries. Sorry, Darryl. Yeah. So, as Paul mentioned, largely view the replacement of batteries as plug and play to make it simple of the new supplier versus the exhaust battery, and just wanted to reiterate. As we've discussed on the call and numerous times. We continue to discuss costs associated with that. With the grids involved, and we have that in the term form sheet, coin, floor, place. Just relocating on a candidate with this campaign. Right. Okay, thanks. That's good. Call. I'll get back in the queue. Thank you. Thanks, Joe. Reiterate that as people are thinking about cost and the cost associated. And the next question comes from a bland. Good morning. Thank you for taking my question. That was bank of America. Your line is open. So from my understanding and going back to the better recall question, that 230,000,000 that you took, essentially. Is what you currently expect. Your portion of the battery replacement plus. Let me just clarify that. It is the warranty cost, and correct me if that's wrong. I guess the reason. And what is reflected in our term sheet is the portion not associated with the recall. So what is being negotiated associated with any installed. Buses that are for the recovery. From exalt as a supplier, let's call it correct. If you reach some sort of agreement. Okay, so that 230 is, like, a gross cost. It could decrease from here. Now of that 230, I guess. Can you maybe. What's the. Absolutely. We would expect it to dramatically decrease. Hadens. I could do a 40 millivitam. Or I guess. Loaded, I guess. Cost 30. How does any sort of recovery look like into 2000 and. Beyond. So the gross number comprised the cash layout of that, let's say, on a gross amount. Before. Two pieces, as Paul mentioned. It's the campaign money to go out and literally take the batteries off and put the new batteries on vehicles. That's the bulk of that accrual, and we would expect that to commence in the first half of 2020. Figures that would be half of the cash flow. Would be in 2026, and it will take 18 to 24 months. So roundy. Six and the other aren't yearly. Snacks on. A bank account. Would have that kind of a profile, and obviously that would be highly dependent upon the terms and conditions of that settlement. But as we talk about. Any sort of settlement. Or evasive. We have a term sheet. To all our listeners. We're not trying to be purposely cue binding. We're in. Deep negotiations with exalt. And so in that done, we will issue a press release clarify to the market our Portia. Term sheet reflects in terms of the economics, the minute we get the prudent to give any indication, more comfortable at what, if any, of that recall. have you Forced provision and. Replacement. Split between. We haven't provided that. But like I said, the majority of the accrual would. Be. The. Battery replacement. Okay. And then maybe going back to this is all that was obviously quite a few new ones. Out there. Section 232, the 10% report super helpful color and then just going to the terrorist. Question. I guess, kind of think about 2026. What would be the unmitigated. Tariff impact. If you want to give a quarterly number or annualized number before any sort of price negotiation with customers. We're still building. Weakening. Give a little bit all the implications of the November 1 changes. We're still kind of bringing throughout to that new stuff. We did a more way with pair similar to others comments and so on. Kind of the high level nature of that as we get closer to the end of the year. And certainly as we talk about the full year results, just a comment on 25. The. Vast majority of units that will sell in 25 are already that Brian just alluded to is the country. Tariffs physically in the United States. So the real tariffs and heroin are. Posted in the political heart rate to see in the US. What we bring that bring in first the section 232. 10% on buses and coaches. And your question is a good one.